New Delhi: Finance Minister Pranab Mukherjee began presenting his annual budget on Monday, saying the impression of policy drift in the scandal-tainted government was misplaced and that food inflation was still a major concern.
“Certain events in the past few months may have created an impression of drift in governance and a gap in public accountability,” Mukherjee told the Parliament in what is widely expected to be a populist budget as Prime Minister Manmohan Singh confronts high prices and corruption scandals as well as elections in five states this year.
“Such an impression is misplaced.”
Analysts say it was unlikely that the government will unveil any politically-sensitive reforms in the budget for the fiscal year starting in April.
The government is expected to count on a robust economy to expand revenue in the absence of big one-time gains that it enjoyed in the current year from the sale of 3G telecom licences. Mukherjee said he expected the economy to grow 9% in 2011-12 and for inflation to ease.
It is also expected to withdraw more of the stimulus that helped India weather the global economic downturn.
Asia’s third-largest economy is on track to grow at 8.6% in the current fiscal year that ends in March. A new government survey has forecast economic growth of about 9% for the next fiscal year.
The Indian economy grew a slower-than-expected 8.2% in the October to December quarter from a year earlier, government data on Monday showed.
Reform measures, such as liberalising foreign investment in multi-brand retail and setting out a definitive roadmap for a nationwide goods and services tax, may need to wait for a more receptive political climate.
Mukherjee is expected to give priority to expanding investment in the farm sector, where inefficiency has helped drive food inflation to double-digits for much of the past year, fueling broader inflation that stands above 8% despite seven interest rate increases since March last year.
Mukherjee said on Monday that the government would take steps to remove bottlenecks in the agricultural sector.
In one of his first budget moves, the minister raised the foreign investment limit in corporate infrastucture bonds by $20 billion.
Moves to bolster development of infrastructure are also expected. Inadequate power, roads and other infrastructure act as bottlenecks to growth and push up costs.
Deficits and subsidies
On Friday, a government survey forecast a deficit for the current fiscal year of 4.8% of GDP -- far better than the 5.5% target, thanks to $23 billion in telecom licence revenue and a surge in growth that boosted tax receipts and enabled higher-than-budgeted spending.
The survey forecast a fiscal deficit of 4.8% for the next fiscal year. Some economists say the figure is optimistic given the absence of one-time gains from the telecom licence sales and the prospect that the country’s subsidy burden could swell if oil prices stay above $100 per barrel and India continues to subsidise diesel and cooking fuels.
Some economists also expect a slowdown in growth in the new year, which would make the deficit target harder to reach.
The finance minister is likely to announce plans to borrow about Rs 4.5 trillion ($99.3 billion) from the bond market in the new fiscal year, roughly in line with the current year’s borrowing, a Reuters poll found.